Contractors and subcontractors that enter into or renew federal contracts after January 1, 2017 should be mindful of requirements to provide detailed wage statements and paid sick leave to covered workers.
As they enter into and renew federal contracts in 2017, contractors and subcontractors should take steps to ensure that they satisfy applicable paycheck transparency and paid sick leave obligations.
Background on Paycheck Transparency Requirements
Executive Order 13673—Fair Pay and Safe Workplaces and its implementing regulations impose three main requirements on federal contractors:
On October 24, 2016, a US district court in Texas enjoined the Executive Order’s reporting obligations and prohibition on arbitration, but did not enjoin the paycheck transparency requirements. As such, the payment transparency requirements apply to new solicitations for contracts valued at $500,000 or more issued on or after January 1, 2017, as well as the resulting contracts that include the paycheck transparency clause.
Wage Statements to Employees
The paycheck transparency provisions of the Fair Pay and Safe Workplaces Executive Order require that contractors and subcontractors that enter into covered contracts provide a wage statement (e.g., a pay stub) to all workers performing work under the contract for whom the contractors are required to maintain wage records under the Fair Labor Standards Act (FLSA), the Davis-Bacon Act, or the Service Contract Act.
The wage statement must be provided each pay period and contain certain information, including the following:
For employees who are exempt from overtime pay under the FLSA, the wage statement does not need to include the number of hours worked if the employees are informed in writing of their exempt status. This notification can be provided in the wage statement, as a standalone document, or included in an offer letter, employment contract, or position description.
Contractors may provide wage statements electronically as long as workers are able to access the statements through a computer, device, system, or network offered or made available by the contractor.
The US Department of Labor (DOL) has stated that contractors that comply with state and local wage statement requirements that are “substantially similar” to the Executive Order’s requirements will be considered compliant with the Executive Order’s paycheck transparency obligations. At this time, the DOL has determined that only Alaska, California, Connecticut, the District of Columbia, Hawaii, New York, and Oregon require wage statements that are substantially similar to those required by the Executive Order.
Independent Contractor Notification
Executive Order 13673’s paycheck transparency provisions also require covered contractors to provide notice to workers the contractor has deemed to be independent contractors. This notice—which must be provided prior to the worker performing any work on the contract—is to inform the worker of his or her status as an independent contractor. The notice must be in writing and provided separately from any independent contractor agreement with the individual. The notice must be given each time the worker begins work on a different covered contract, and may not suggest that enforcement agencies or the courts agree with the contractor’s determination that the worker is an independent contractor.
If a significant portion of the contractor’s workforce is not fluent in English, the wage statements and independent contractor notifications must also be provided in the relevant non-English language(s). The DOL has not set a specific threshold for what constitutes a “significant portion” of the workforce, so each contractor will need to set its own criteria for what percentage of non-English speaking workers triggers the translation obligation.
Executive Order 13706—Establishing Paid Sick Leave for Federal Contractors and its implementing regulations require certain federal contractors to provide paid sick leave to covered employees. The requirements apply to new contracts (solicitations issued or contracts awarded on or after January 1, 2017) that contain the clause set forth in FAR 52.222-62 and are covered by the Service Contract Act, the Davis Bacon Act, concessions contracts, and service contracts in connection with federal property or lands. Employees covered by Executive Order 13706 are those whose wages are governed by the Service Contract Act, the Davis-Bacon Act, or the FLSA, including employees deemed exempt from overtime. These employees must be allowed to accrue and use paid sick leave while working on or in connection with a covered contract.
Accrual and Coordination With Existing PTO Plans
Covered employees are entitled to accrue 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract—up to 56 hours in a year or at any point in time. For exempt employees, the contractor may calculate paid sick leave accrual by tracking the employee’s actual hours worked or by assuming the employee works 40 hours each week on or in connection with a covered contract. Contractors are permitted to use an estimate of the time their employees work in connection with (rather than on) a covered contract—as long as the estimate is reasonable and based on verifiable information. Alternatively, contractors can provide a covered employee with at least 56 hours of paid sick leave at the beginning of each accrual year rather than having the employee accrue leave based on hours worked.
Employers are permitted to integrate the paid sick leave requirements with existing paid time off plans. Specifically, employers are not required to provide an additional 56 hours of leave (or a separate paid sick leave benefit) on top of an existing paid time off plan if the existing plan is “equivalent to or more generous than” what is required under the Establishing Paid Sick Leave for Federal Contractors Executive Order.
Use and Carryover
Covered employees may use paid sick leave while working on or in connection with a covered contract in the following situations:
There is no waiting period to start accrual or use of paid sick leave. Employees can use as little as an hour of paid sick leave or all accrued paid sick leave, at any time. Employers can require certification from a health provider if an employee needs to use leave for three or more consecutive days. An employer must, however, provide actual notice to the employee of the requirement; a reference to the requirement in an employee manual or policy is not sufficient.
Employees can carry over up to 56 hours of unused paid sick leave from year to year while they work for the same contractor on covered contracts. Additionally, contractors are required to reinstate an employee’s accrued, unused paid sick leave if the employee is rehired by the same contractor within 12 months after a job separation. Contractors are not required to pay employees for accrued, unused paid sick leave at the time of job separation, but if they do allow employees to cash out unused leave, they are not required to reinstate unused leave.
Employers that are planning to enter into federal contracts in 2017 should be mindful of the additional costs and administrative burdens imposed by these two executive orders. At this time, is unclear whether the incoming administration of President-elect Donald Trump will seek to void these orders or lessen the burdens imposed. Accordingly, contractors should plan to comply with the executive orders’ requirements while remaining on the lookout for potential changes.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Robert J. Sherry
Sheila A. Armstrong
Paul C. Evans
 On December 22, 2016, the government filed an appeal of the injunction with the Fifth Circuit.
 This coverage is identical to the coverage under Executive Order 13658, establishing a minimum wage for federal contractors.